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Oil Prices Pare Gains on Soft Report

"The magnitude of the API crude build released on Tuesday head faked the market into expecting at least a build of some kind, and when this wasn't the case, prices rallied -- despite the soft underbelly to the numbers," said Smith.

Analysts attribute the discrepancy to the limited and voluntary contributions from various elements of the supply chain to the API surveys vs. the mandatory contributions to the EIA surveys.

The API surveys "tend to be skewed toward the large integrated companies like the Exxons, ConocoPhillips', Shells and BPs, said Kloza. It's been representing "upstream interest more than downstream and trading interests."

By the end of the trading session, the softer underbelly of the EIA report began to regain some attention as the initial excitement over Bernanke's comments, the China data and the more bullish aspects of the EIA data subsided.

Evans noted that although the 3.1 million barrels decline in U.S. commercial crude stocks was more than expected and the 800,000 barrels decline in gasoline stocks was supportive, total petroleum inventories actually rose by 4.3 million barrels and demand was soft.

Separately, the International Energy Agency said that oil demand should continue to grow in the months ahead and that it may release more crude oil into the market at its meeting next week.

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